If you are considering purchasing an investment property you need to understand all of the finance alternatives available to you.
A well known investment strategy is to borrow funds or use the equity in your existing home to purchase an investment property. Whilst achieving long term capital growth, this also provides ongoing rent and taxation benefits.
When you borrow funds for investment purposes you are using a technique known as gearing. An example of the type of taxation benefit available is negative gearing. This is achievable if the interest payments on your loan are greater than the income you receive from the rental income of your new investment. You are then able to use the difference as a tax deduction. Using this method it is possible to reduce your assessable income and so also your overall taxation liability.
Using the equity in an existing property - investors often use the equity in an existing property to fund an investment strategy. Using the equity in an existing property allows you to increase your overall investment potential. You can easily work out how much equity you have in your existing property with a simple calculation:
David currently earns €57,000, and has lived in his home for 9 years. He still owes €60,000 on his mortgage, but after talking to a financial planner decides to use the equity in his home to purchase an investment property. A real estate agent values his home at €210,000, which means he has approximately €150,000 equity in his existing home.
With the help of a financial planner, he purchases a property for €150,000. The following summarizes the monthly income and expenditure relating to his new property.
Monthly Income €640 (Rental income)
Monthly Expenses €1,238 (Insurance, strata fees, property maintenance, interest on loan)
David then uses the difference of €548 per month as a tax deduction. This reduces his annual taxable income to €50,424.
Our experts will help you to calculate the most suitable financial model for your investment and relevant investments for your financial situation, we will calculate and help you with releasing equity in your existing property.
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